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While President Barack Obama travels around the country drumming up support for an economic stimulus package, corporate tax managers may want to take a closer look at what a new compromise bill may offer. Today a bipartisan group of senators reached an agreement on a substitute version of a proposal that was already passed by the House of Representatives, but that is stalled in the Senate.

The hope is that the new version will make it to the Senate floor tomorrow, giving Congress about a week to work out a compromise that could be sent to the president to meet his February 16 deadline. Whether that tight deadline can be met is anybody’s guess.

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In a Grant Thornton advisory, tax partners Mel Schwarz and Dustin Stamper noted that House and Senate bills “still share several important provisions,” including a five-year net operating loss (NOL) carryback period, extension of bonus depreciation into 2009, and a block on an IRS exemption for companies receiving bailout funds.

Credit Suisse also issued an analysis of the NOL carryback and bonus depreciation provisions, providing estimates of the potential tax savings. In the Credit Suisse advisory, research analysts David Zion, Amit Varshney, and Christopher Cornett explained that the carryback period for NOLs will likely be extended from two years to five years, for losses generated this year and in 2008. Companies can use NOLs to offset taxable income, and thereby reduce the corporate tax bill.

Further, NOLs can be used as a refund of past taxes paid, or a reduction in future taxes due, say the Credit Suisse analysts. However, they contend that a refund “is preferable” for companies with liquidity problems because it gives them a source of cash, a much-needed boost to near-term liquidity, and a chance to put the cash to work now.

Companies were already allowed to apply last year’s NOLs to 2007 and 2006. But if the carryback period is extended, refunds could be applied to taxes paid in 2003, 2004, and 2005, bringing the aggregate maximum refund for S&P 500 companies to about $295 billion. That refund total would fluctuate depending on the losses these companies report in 2008 and 2009.

Credit Suisse also commented on a possible extension of the bonus depreciation allowance into 2009, another way of keeping cash in corporate coffers. The analysts estimate that this could save $54 billion in taxes across the S&P 500 this year, for assets acquired and placed into service during 2009.

The report detailed how the bonus ultimately boosts cash flow: It allows companies to depreciate — for tax purposes — more of an asset’s upfront cost, so they incur higher depreciation expense in the early years of the asset’s life, but lower taxable income. In the end, a company is paying out less cash for taxes.

Credit Suisse expects capital-intensive industries to benefit most from the bonus depreciation allowance, noting that energy companies are likely to save $14.3 billion in taxes in one year, while utilities would likely save $8.3 billion and discretionary consumer goods and telecommunications services would save $6.9 billion and $6.2 billion, respectively.

Duck!

Despite the glowing cash flow numbers that the bonus promises, Credit Suisse and other experts warn companies to watch out for the bonus depreciation boomerang, which is likely to weigh down cash flows in 2009. The report claims that when bonus depreciation expires, the already highly depreciated assets don’t provide their traditional “tax shield.” As a result, as the asset gets older, a lower depreciation expense is recorded for tax purposes, triggering higher taxable income and higher outlays of cash payments for taxes — a drain on cash flow.

John Deane, managing principle of the Alta Group, a leasing industry consultancy, agrees with the boomerang theory. This type of “super bonus depreciation for a profitable company means that a much higher percentage of equipment cost is written off in year one, as an incentive to companies to buy more equipment,” he told CFO.com in an earlier interview. But he stresses that the bonus is a depreciation gain, not a credit. That means the bonus depreciation allowance “will come back,” although it has a material positive impact on cash flow in the first year. “Effectively, it’s like a company is getting a loan from Treasury,” adds Deane.

The Credit Suisse report estimates that the tax shield from assets purchased in 2008 would decline by $63 billion in 2009. So the $54 billion cash flow boost from bonus deprecation in 2009 would be offset by the 2008 boomerang effect. Essentially, there would be a net cash flow drop of $9 billion, assuming that capital expenditures in 2009 are 10 percent less than 2008. In the end, the boost to cash flow is not sustainable, say the Credit Suisse authors.

Nevertheless, they point to a silver lining. The “real” benefit of bonus depreciation is timing. Consider that bonus depreciation does not change the total amount that will eventually be written down, but rather the timing of the depreciation. That delays tax payments and creates a “net present value positive as long as you can do something productive with the money before you have to send it to the IRS,” opine the analysts.

The Grant Thornton advisory highlights a few other business-related tax issues that appear in both the House and Senate bills. For instance, both bills would extend through 2009 the $250,000 limit for small business expensing under Section 179 of the tax code. The increased phase-out threshold starting at $800,000 would also be extended into this year.

In addition, both bills would rescind the NOL limitation exception the IRS granted to banks and other companies receiving bailout funds. In IRS Notice 2008-83, the agency aimed to waive the rule that reduces the amount of NOLs a company can use to offset taxable income when there is a change of ownership. The IRS did not want to count the stock bought by the Treasury Department in the calculation used to determine whether there is a change of ownership at a company. However, Congress wants to keep the change of ownership trigger in place.